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Ethics and the Conduct of Business Eighth edition Chapter 2 Ethical Decision Making Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Modules • Introduction: Ethical Decision Making • 2.1: Market Ethics • 2.2: Roles, Relationships, and Firms • 2.3: Ethical Reasoning • Conclusion: Ethical Decision Making Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Learning Objectives • • • 2.1: Recognize the features of the market system, the ethics of market transactions, and the problems created by imperfect market conditions 2.2: Identify the duties and obligations associated with fundamental business roles and relationships in markets and firms 2.3: Describe the philosophical and psychological approaches to ethical reasoning and the principles that constitute a moral framework for business conduct Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Introduction: Ethical Decision Making • A buyer and seller come together to trade • Business activity involves roles and relationships • Seven basic principles of ethical decision making Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.1: Market Ethics (1 of 4) Objective: Recognize the features of the market system, the ethics of market transactions, and the problems created by imperfect market conditions • 2.1.1: The Market System – Features – Justification – Market outcomes • 2.1.2: Ethics in Markets – Self-interest – Morally free zone – Ethics for imperfect markets Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.1: Market Ethics (2 of 4) Objective: Recognize the features of the market system, the ethics of market transactions, and the problems created by imperfect market conditions • 2.1.3: Breaches and Fraud – – – – Implicit Incomplete Lack remedies Fraud and manipulation • 2.1.4: Wrongful Harm – Obligations of morality – Due care and negligence Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.1: Market Ethics (3 of 4) Objective: Recognize the features of the market system, the ethics of market transactions, and the problems created by imperfect market conditions • 2.1.5: Market Failure – – – – Conditions Externalities Public goods Collective choice Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Figure 2.1: Prisoner’s dilemma Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.1: Market Ethics (4 of 4) Objective: Recognize the features of the market system, the ethics of market transactions, and the problems created by imperfect market conditions • 2.1.6: Summary of Market Ethics – To address problems in imperfect markets – Laws Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Table 2.1: Ethics in Markets Problems Elements Solutions Violation of agreements (breaches of contract) Breaches of contract often result from agreements that are implicit, incomplete, and lack immediate remedy. • Contract law • Principles for promise keeping Misrepresentation of information (fraud) Fraud involves not only misrepresentation of information but also materiality, intent to deceive, reliance, and harm. • Anti-fraud law • Principles for honesty Wrongful harm of others (torts) Torts are the intentional or negligent violation of rights in such matters as health, safety, privacy, property, and discrimination. • Tort law • Principles for due care Market failures (inefficiency) Market failures result in inefficiency due to low competition, externalities, public goods, and collective choice problems. • Government regulation and legislation like antitrust law, consumer law, employment law, securities law, environmental law, taxation • Special use of market Mechanisms • Trustworthy behavior Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.2: Roles, Relationships, and Firms (1 of 2) Objective: Identify the duties and obligations associated with fundamental business roles and relationships in markets and firms • 2.2.1: Agents and Principals – Agents – Duties of agents • 2.2.2: Fiduciaries and Professionals – – – – – Fiduciary Fiduciary duty Fiduciary relationship Defining features of profession Standard of profession Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.2: Roles, Relationships, and Firms (2 of 2) Objective: Identify the duties and obligations associated with fundamental business roles and relationships in markets and firms • 2.2.3: Firms – Economic view – Legal view – Sociological view • 2.2.4: Summary of Roles, Relationships, and Firms – Divided into two ethics – Obligations – Myriad roles and relationships Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.3: Ethical Reasoning (1 of 2) Objective: Describe the philosophical and psychological approaches to ethical reasoning and the principles that constitute a moral framework for business conduct • 2.3.1: Philosophical Accounts – Moral point view – Features of moral point view • 2.3.2: Psychological Accounts – Psychologist’s conclusion – Daniel Kahneman’s perspective – Lawrence Kohlberg’s perspective Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Table 2.2: Moral Development According to Kohlberg Level Pre-Conventional Morality Stages 1. Obedience and Punishment Orientation Ethical Reasoning People are focused on themselves and incapable of other-oriented ethical reasoning or behavior. 2. Self-Interest Orientation Conventional Morality 3. Good Interpersonal Relations 4. Authority and Social Order Orientation People* are mindful of others, understand rules and laws, and conform to societal expectations. *Most adults Post-Conventional Morality 5. Social Contract and Individual Rights Orientation 6. Universal Principle Orientation People* can engage in mutually advantageous cooperation, understand the value of abstract moral principles, and practice sophisticated ethical reasoning. *Fewer than 20% of adults Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved 2.3: Ethical Reasoning (2 of 2) Objective: Describe the philosophical and psychological approaches to ethical reasoning and the principles that constitute a moral framework for business conduct • 2.3.3: Framework for Reasoning – Awareness of issues – Identifying issues – Resolving issues Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Figure 2.2: Candor, Care, Loyalty Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved Conclusion: Ethical Decision Making • Two parts of business ethics • Roles and relationships Copyright © 2017, 2012, 2009 Pearson Education, Inc. All Rights Reserved